Article

Strengthen shareholder power to rebuild trust in business, says IoD

10 May 2017

The UK’s longest-running organisation for business leaders has called on the next government to give investors a bigger say in executive pay at Britain’s largest companies. In the second of a series of business manifesto papers, setting out the challenges that will face the victor after June’s election, the Institute of Directors has today urged the parties to adopt a new rule forcing stock-market listed firms to give shareholders a second vote if a significant minority reject the company’s pay policy.

Currently, shareholders have a binding vote on future pay policy once every three years. Under the IoD’s proposals, if 30% of investors oppose this policy, the company would have to look again at it and give shareholders another vote, ideally at an exceptional general meeting. Despite a series of high profile rebellions in recent months, future executive pay policy is normally waved through at AGMs, with only 3% of FTSE 100 companies suffering a majority vote against in 2016.

The IoD’s paper, which is part of the organisation’s Let’s Push Things Forward series, setting out a range of policies to strengthen the UK economy after the general election, also calls on the next government to develop a code of practice for large unlisted companies and place more emphasis on director training.

Oliver Parry, Head of Corporate Governance at the Institute of Directors, said:

“UK company boards have been put under unprecedented scrutiny in recent months, with the Government and the House of Commons business committee suggesting reforms to executive pay and the governance of private companies. Business has been facing a crisis of public confidence since the financial crisis, and the political impetus to intervene will not disappear, whoever is elected.

“UK corporate governance is highly regarded across the world, but there is still a pressing need to rebuild public trust in big business to work in the long-term interests of investors and employees, rather than the short-term interests of managers. Now is the time for sensible reforms which increase transparency and draw more engagement from shareholders.”